EVA - Metrics.ppt
- 2. 2 Today’s Situation Need for accurate and consistent status of information Numerous complex (and interrelated) projects Projects with many WBS activities Diverse technology platforms 70% of projects are: •Over budget •Behind schedule 52% of all projects finish at 189% of their initial budget And some, after huge investments of time and money, are simply never complete Source:The Standish Group
- 3. 3 “Have we done what we said we’d do?” % complete of % of Budget spent % of work done % of time elapsed When evaluating the current status of a project the following questions arise: •What is the current effort? •What has been delivered so far? •What should have been the corresponding effort? •When will the project end? •What will be the overall effort? •What is the actual cost spent on work?
- 4. Earned Value Analysis -EVA Earned value analysis (EVA), allows project managers to make sure the cost of the project aligns with its progress Understanding how to calculate and use EVA can help you manage your projects effectively 4 • Earned value analysis is a standard method of measuring a project's progress at any point to analyze changes in the project's plan and adjust the budget accordingly. • Project managers use EVA to predict the total cost of a project at completion. • This method considers all the work the team has completed and the money they have spent at a specific point in the project and compares it to the baseline, or the original budget and schedule. • Project managers can use this information to determine patterns and make decisions about how to proceed with the project.
- 5. 5 Earned Value Analysis “Earned Value Analysis” is: • an industry standard way to: • measure a project’s progress, • forecast its completion date and final cost, and • provide schedule and budget variances along the way. Compares the PLANNED amount of work with what has actually been COMPLETED, to determine if COST , SCHEDULE, and WORK ACCOMPLISHED are progressing as planned.
- 6. 6 EVA Contd.. By integrating three measurements, EVA provides consistent, numerical indicators to evaluate and compare projects. Work is “Earned” or credited as it is completed. Earned value = % of completion x project budget For example, if you have a project budget of $4 million and your team has completed 20% of your project, EV = 20% x $4 million = $800,000 If your team has spent $800,000 or less on the project so far, you can confirm the project aligns with the budget.
- 7. 7 Earned Value needed because... Provides an “Early Warning” signal for prompt corrective action. Still time to recover Timely request for additional funds Circular A-11, Part 7 (Executive Office of the President, Office of Management and Budget ): Agencies must use a performance based acquisition management system, based on ANSI/EIA Standard 748, to measure achievement of the cost, schedule, and performance goals. Performance-based acquisition management means a documented, systematic process for program management, which includes integration of program scope, schedule and cost objectives, establishment of a baseline plan for accomplishment of program objectives, and use of earned value techniques for performance measurement during execution of the program.
- 8. ANSI/EIA standard(American National Standards Institute / Electronic Industries Alliance) Define authorized work Identify Program Organization Structure Company integration of EVMS subsystems with Work Breakdown Structure (WBS) Identify organization/function for overhead Integrate WBS and Organization Breakdown Structure (OBS), create control accounts Sequential scheduling of work Identify interim measures of progress, i.e. milestones, products, etc. Establish time-phased budget Identify significant cost elements within authorized budgets Identify discrete work packages All work package budgets & planning packages sum to control acct Identify and control budgets Establish overhead budgets by organization element Identify management reserve and undistributed budget Reconcile program target cost goal with sum of all internal budgets (Contd…) 8
- 9. ANSI/EIA standard Record direct costs from accounting system Summarize direct costs into WBS without allocation Record indirect costs Identify unit costs, equivalent units costs or other costs Accurate material cost accumulation by control accounts; EV measurement at right time; full accountability of material Control account monthly summary, identification of Cost Variance (CV) and Schedule Variance (SV) Explain significant variances Identify and explain indirect cost variances Summarize data elements and variances thru WBS/OBS for mgmt. Implement management actions as result of EVM analysis Incorporate authorized changes in timely manner Reconcile budgets with prior budgets Control retroactive changes Prevent all but authorized budget changes Document changes to Performance Measurement Baseline (PMB) 9
- 10. 10 Requirements of Earned Value Proper WBS Design Baseline Budget Control Accounts Baseline Schedule Work measurement by Control Account work-hours, dollars, units, etc. Good Project Management Practices
- 11. 11 Steps for EVA 1. Define the work : Work Breakdown Structure (WBS) with work packages containing 3 measurable components: Scope of work to be accomplished Total (direct and indirect) cost Timeframe for completion
- 12. 12 Control Account Plans A CAP is essentially a Work Package with some added features: Assignment of responsibility • Organization • Individual Division (if necessary) into lower-level Work Packages. Metrics for measuring EV performance • Milestones • % complete • Other The sum of the CAPs constitutes the Performance Measurement Baseline (PMB)
- 13. 13 Steps for EVA 2. Setting up a Baseline Plan : Work is planned, budgeted, and scheduled in time-phased "planned value" increments constituting a Performance Measurement Baseline (PMB). Performance Measurement Baseline
- 14. 14 Steps for EVA 3. Measure Performance: Focuses on performance Analyzing the data to determine real project status. In determining the status of projects, three key components are examined • Cost and Schedule baseline • Actual Charges (expenditures) • Reported accomplishments or “Earned Value”
- 15. Measuring variables Budgeted cost for work scheduled (BCWS), sometimes called the planned value. Budgeted cost for work performed (BCWP) or earned value. Actual cost of work performed (ACWP). Budget at completion (BAC). Estimate at completion (EAC) which is comprised of the cumulative of actual cost of work performed plus the estimate to complete the remaining work. Cost variance (CV) which is calculated as BCWP minus ACWP. A result greater than 0 is favorable (an underrun), a result less than 0 is unfavorable (an overrun). Schedule variance (SV) which is calculated as BCWP minus BCWS. A result greater than 0 is favorable (ahead of schedule), a result less than 0 is unfavorable (behind schedule). Variance at completion (VAC) which is calculated as BAC minus EAC. A result greater than 0 is favorable, a result less than 0 is unfavorable. 15
- 16. 16 Metrics Defined BCWS - Budgeted Cost of Work Scheduled/ Planned Cost Planned cost of the total amount of work scheduled to be performed by the milestone date. BCWS is the sum of the budget items for all work packages, planning packages, and overhead which was scheduled for the period, rather than the cost of the work actually performed. BCWS = % Complete (Planned) x Project Budget BCWP is also contrasted to Actual Cost of Work Performed (ACWP) which measures the actual amount spent rather than the budgeted estimates BCWP = % Complete (Actual) x Project Budget ACWP - Actual Cost of Work Performed Cost incurred to accomplish the work that has been done to date. Cost Variance = BCWP – ACWP.
- 17. EVM Percent complete is simply the amount of work that has been completed divided by the budget at completion. % complete = BCWP / BAC Percent spent is the amount of the budget that has been spent. It is calculated by dividing the actual cost of work performed by the budget at completion. % spent = ACWP / BAC Earned Value (EV) = Total project budget multiplied by the % complete of the project (BCWP) 17
- 18. Assume we are working on a Client/Server project, and part of the scope is for Software Design. The time frame is 5 months and the budget for this scope is $15,000, resulting in a budget of $3,000 per month. Client/Server Project - WBS 1.1.1 Software Design Dollars JAN FEB MAR APR MAY PV 3000 3000 3000 3000 3000 18
- 19. 19 Some Derived Metrics SV: Schedule Variance (BCWP-BCWS) A comparison of amount of work performed during a given period of time to what was scheduled to be performed. A negative variance means the project is behind schedule CV: Cost Variance (BCWP-ACWP) A comparison of the budgeted cost of work performed with actual cost to measure cost efficiency. A negative variance means the project is over budget i.e. more money is spent than was planned.
- 20. 20 Schedule Variance & Cost Variance Schedule Variance = BCWP-BCWS $49,000 - 55,000 SV = - $ 6,000 Cost Variance = BCWP-ACWP $49,000 56,000 CV = - $7,000
- 23. 23 SPI: Schedule Performance Index SPI=BCWP/BCWS SPI<1 means project is behind schedule CPI: Cost Performance Index CPI= BCWP/ACWP CPI<1 means project is over budget CSI: Cost Schedule Index (CSI=CPI x SPI) The further CSI is from 1.0, the less likely project recovery becomes. Some More Derived Metrics
- 24. 24 Performance Metrics SPI: BCWP/BCWS 49,000/55,000 = 0.891 CPI: BCWP/ACWP 49,000/56000 = 0.875 CSI: SPI x CPI .891 x .875 = 0.780 The CPI and SPI are statistically accurate indicators of final cost results.
- 25. Project Scope Build 80 modules Project Schedule Estimate 5 Days Cost Estimate per module 1000 units of money Project Cost Estimate 80000 units of money 25 Project Plan The project team needs to build 80 modules in 5 days. It is estimated that each module will cost 1000 units of money. The following figure provides initial plan for the project. It also provides equivalence between Project Scope, Schedule, and Cost. Let us assume that, the project was started 3 days ago and we are evaluating the performance at the end of Day 3. Day 1 Day 2 Day 3 Day 4 Day 5 Modules Planned to be Built 10 13 17 20 20 Estimated Cost for the Day Estimated Cumulative Cost Module Actually Built 8 12 15 Value of Modules Actually Built Cumulative Value of Modules Actually Built Actual Cost for the Day 8000 12000 16000 Actual Cumulative Cost
- 26. Project Scope Build 80 modules Project Schedule Estimate 5 Days Cost Estimate per module 1000 units of money Project Cost Estimate 80000 units of money 26 Project Plan The project team needs to build 80 modules in 5 days. It is estimated that each module will cost 1000 units of money. The following figure provides initial plan for the project. It also provides equivalence between Project Scope, Schedule, and Cost. Let us assume that, the project was started 3 days ago and we are evaluating the performance at the end of Day 3. Day 1 Day 2 Day 3 Day 4 Day 5 Modules Planned to be Built 10 13 17 20 20 Estimated Cost for the Day 10000 13000 17000 20000 20000 Estimated Cumulative Cost 10000 23000 40000 60000 80000 Module Actually Built 8 12 15 Value of Modules Actually Built 8000 12000 15000 Cumulative Value of Modules Actually Built 8000 20000 35000 Actual Cost for the Day 8000 12000 16000 Actual Cumulative Cost 8000 20000 36000
- 27. Solutions: SV = 35000 – 40000 = -5000 CV = 35000 – 36000 = -1000 SPI = 35000 / 40000 = 0.875 CPI = 35000 / 36000 = 0.97 27
- 28. 28 Benefits of Earned Value Schedule Status Reporting Cost Status Reporting Forecasting Risk Identification Risk Monitoring Earned Value Analysis is a suggested technique of the following processes: • Monitor and Control Project Work, • Control Schedule, • Control Costs, and • Control Procurements.
Editor's Notes
- #6: (2) Those three measurements are: time expired work accomplished money spent
- #7: (2) Thus the name Earned Value; you can actually assign a VALUE to the project at a particular time
- #11: You need the WBS structure to be able to quantify output (what is the deliverable?) Baselines provide a measuring stick. And if there are not good management practices in place, it won’t work.
- #13: If you get into EVA in depth, you may here about a CAP. Previously called Cost Account Plan.
- #15: The Work Package needs to be of the size that it can be handed off to a task manager. Too large and you have multiple people responsible for the work. Too small and the program manager winds up micro-managing everything. The “accompanying narrative” is really an SOW – or Statement of Work.
- #20: Oh Boy! Some derived metrics – you were all waiting for some of those, weren’t you? Cost Variance and Schedule Variance are simply arithmetic differences of where we are and where we should be.
- #21: Simple arithmetic. We’ve accomplished $6,000 worth of output less than we should have And we’re $7,000 over budget We need some more derived metrics.
- #22: Simple arithmetic. We’ve accomplished $6,000 worth of output less than we should have And we’re $7,000 over budget We need some more derived metrics.
- #23: Simple arithmetic. We’ve accomplished $6,000 worth of output less than we should have And we’re $7,000 over budget We need some more derived metrics.
- #24: Well, we know we’re behind schedule and over cost, and we know exactly much for each one, but so what? Well, now we can begin to integrate these two pieces of information and get an overall picture. The Performance Indices are really just a way of calculating, on a percentage basis, where we are. SPI CPI But now, when we combine the two, the percentage figure becomes more significant.
- #25: Too many numbers! OK, we’re performing at about 89% of where we should be on performance, our cost performance is a little worse, But look at the impact when you combine the two! What do we do now?